Daily Wrap

Last night it was pretty clear between the signals, the candlesticks, the Dominant Price/Volume Relationship, etc. that today we'd close lower.

All day I've had the feeling that tomorrow we'll see some upside or some kind of trade that is the equivalent of noise, it's the kind of trade that has a purpose and that's usually knocking traders out of positions or sowing confusion and in those situations you are generally best off looking at the trend and going with the trend. In our case we are looking at the underlying trade or 3C trend and it's pretty darn clear so in my opinion, tomorrow can be useful for tactical set ups/trade entries.

Today there was no Dominant Price/Volume relationship, there were a whole bunch of intraday divergences that never grew any more powerful than that, there were a whole bunch of bullish looking candlesticks, mostly like hammers, but this is not the place for a real hammer and the volume doesn't do anything to make it more reliable, but it would fit perfectly with what I would call somewhat meaningless trade, it will or should scare people out of trades and in that sense it can provide an opportunity to set up new positions, maybe a new XLF Put or something along those lines, it really depends on how it develops and how long it looks to last. From the reversal process and the size of the footprint, there's time for a day of fooling around.


Here are some charts, in many ways where it's really important the market saw more deterioration today, where it's not so important, but still capable of moving the market (short term), there were signals that fit the bill, but again nothing that causes me any concern as to close the leveraged equity/ETF shorts, just the option position.

My guess, although I haven't had a chance to study the currencies, is that a SPY Arbitrage is likely to be employed based on HYG/VXX and TLT's potential for a downturn / pullback tomorrow (the signals are there for it).

For instance...

 This is the SPX (green) with price inverted, today's the first day since last week that short term VIX futures slightly underperformed their correlation, VXX would need to move down to activate the SPY arbitrage and create short term bullish manipulation (typically it lasts a day, sometimes less).

VXX also saw 1 min intraday negative 3C divegrence which is why it underperformed above and a slight positive to bring it back to in line, I suspect they didn't want to move it before tomorrow.

This is SPX normal and HYG credit overlaid, it outperformed the correlation today and HYG needs to move up to activate the SPY arbitrage.

However even intraday HYG saw some distribution in to higher prices in its 3-day range.

This chart backed out to scale is leading deeply negative, but that's not the point of the post.

The SPY negative intraday yesterday and in line today, but it never built any stronger to say a leading positive divegrence which would still be weak on a 2 min timeframe, but at least it would show there's a strong chance of a traceable 1-day move, this was kind of apathetic.

Now for what happened on the longer, more important charts today, VXX added to its leading positive divegrence on this 30 min chart which is a very significant timeframe.

Typically accumulation like this takes place in to flat or lower prices so today was perfect for this move on this chart.

HYG was negative on the 1 and 5 min last Friday, then it moved to the 10 min and signs on the 15 and 30 min, today's 10 min stayed leading negative.

 And of course the important chart for the SPY, even here on a 5 min chart where the positive divegrence at the lows is clear, we have a new leading negative divegrence below the lowest 3C low on the chart with price just off the highs making it the largest divergence on the chart, or the largest move in underlying trade.

 Commodities continued to lead the market lower as a leading indicator, they aren't needed for any manipulation or arbitrage so this isn't surprising.

 A larger view of the leading positive at SPX lows and leading negative at highs, you can see how the accumulation/distribution cycle works with leading indicators.

The short term sentiment indicator points to higher pricees (than today) tomorrow, although as shown in the massive chart post the other night, the longer view of this indicator is significantly below the SPX and negative.

Yields also dropped to a new low tooday.

Here's the leading positive at the SPX lows and the even deeper leading negative at the highs, I drew in (yellow) what price might look like, although typically to get movement they need something to create it like a new high which is just a bit above so that wouldn't be surprising and likely would set up some more nice Put trades like XLF today at 20+% for a day.

I'll check futures later tonight, I wouldn't be surprised to see the Nikkei (which is similar to the Dow in terms of points/value) bounce a bit after last night's -2% drop. To me it looks like the yen will bull flag and that should allow the Nikkei a little room, if it continues until tomorrow morning it would help the US markets too.

Still, nothing that's worrying, just opportunities as far as I can tell.

Ultimately I think the most important analysis is that of Friday's and what has happened since.